Lithuanian voters to give harsh verdict on austerity

VILNIUS (Reuters) - Lithuanians are likely to eject their center-right government in an election on Sunday that could be a taste of what awaits other European leaders forced by the financial crisis to implement unpopular austerity measures.

An ex-Soviet state of about three million people, Lithuania crashed hard when the crisis hit four years ago. It made tough budget cuts in response and is now returning to economic health - but too late for voters fed up with belt-tightening.

Opinion polls indicate they will throw out Prime Minister Andrius Kubilius and install a coalition led by the opposition Social Democrats, who promise to raise the lowest wages and make the rich pay more income tax than the poor.

This country on the Baltic Sea, held up by eurozone countries as a model of how to respond to the crisis, is in some ways a bellwether for governments in Greece, Spain and elsewhere, who are being forced to make similar swinging cuts.

"We think that we are going to win this parliamentary election," Algirdas Butkevicius, the leader of the Social Democrats and likely new prime minister if his party wins, told Reuters as he stood in line to vote in the capital, Vilnius.

Before the Wall Street crash in 2008, Lithuania was booming. Scandinavian banks provided cheap credit which let the country buy more than it sold and over-heated the real estate market.

When the crisis struck, the banks stopped lending. Economic output dropped by 15 percent in 2009. Unemployment shot up. Thousands of young Lithuanians went abroad to seek work.

Kubilius, elected after the crisis began, cut pensions and public sector wages. To save money, only every third street lamp in Vilnius was lit, and fuel for police cars was rationed.

This discipline helped the economy rebound. Gross domestic product grew 5.8 percent last year, one of the fastest rates of any European Union economy. The budget deficit has been tamed.

But many Lithuanians now say the price was too high, and they blame the government.

"What kind of crisis management are we talking about?" asked Alfonsus Spudys, 78, on his way out of a polling station in the capital's Antakalnis district. "They scythed people down ... and now they are saying they handled the crisis really well."

LESS AUSTERITY

That sentiment has translated into support for the center-left Social Democrat party, even though they were in the government that led Lithuania into the crisis in 2008.

An opinion poll this week showed the Social Democrats were the most popular party, with 16.9 percent. The Labour party, likely coalition partner for the Social Democrats, had 15.8 percent. The prime minister's Homeland Union was on 7.9 percent.

Butkevicius, the Social Democrat leader, has promised to soften the impact of market forces on the sick, the old and the jobless.

He has also said if elected he aims for Lithuania to adopt the euro in 2015, a year later than planned now. That would give him a breathing space before he has to get the economy in line with the euro's exacting membership criteria.

Butkevicius said he will though keep the deficit within three percent of gross domestic product as demanded by EU rules.

Instead, he plans to raise money by, among other things, improving energy efficiency so Lithuania can reduce the amount of natural gas it buys from Russia. "We don't like to export our money from Lithuania to Russia," he told Reuters on Sunday.

However, economists say the country's still-delicate finances dictate that whoever is in government will have to stick, for the most part, to the existing austerity programme.

The wild card in the election is a new anti-establishment party, called Path of Courage. It could attract protest votes from Lithuanians who feel that all the main parties have taken a turn in power and failed to make life any better.

Lithuania's complex electoral system means Sunday's vote may not produce a clear-cut result. It will be followed by negotiations to form a governing coalition. A second round will take place in two weeks to settle races in local districts where no candidate won a clear majority.